China Can't Compete in Solar Either

As U.S. solar companies struggled, quit the business or outright failed in recent years, the blame has been the same: “We can’t compete with China;” “They manufacture panels far cheaper than us;” “They dump their cheap products in our country;” and “China understands the future of renewables and we need to catch up.”

That excuse soon won’t fool people any more, according to a London Telegrapharticle from Wednesday.

“China’s big five firms are all reporting disastrous trading and heavily indebted balance sheets,” the newspaper reported. “At the end of the first quarter, JA Solar listed debt and liabilities of $1.5 billion, Trina Solar had debts of $1.08 billion, and Yingli had debts of $3.44 billion.”

In addition another highly regarded company, Suntech, faces potentially huge payouts related to possible fraud and has $3.58 million in debt. The fifth company, LDK, is being kept afloat by the Chinese government despite losing $185.2 million in the first quarter as sales dropped by 75 percent. According to the Telegraph, 4,500 staff were furloughed last month, and a two-year-old “state of the art” factory has shut down 24 of its 32 production lines.

“The whole industry is doing badly, and LDK also had a strategy problem,” said one of its workers. “There is no point in worrying now. It is simply a matter of time before the factory closes. I give it a maximum of six months.”

As in Europe and the U.S., the Chinese business has grown only because of cheap money funneled to it via government grants and loans. Mandates to expand renewable energy invited China to unload its low-cost solar panels in the West, and supply greatly outpaced demand.

“Since 2010,” the Telegraph reported, “the price of polysilicon wafers has fallen by nearly three-quarters. The price is now below the production cost - in the latest quarter, LDK Solar’s gross margin was -65.5 percent.”

These are the competitors that U.S. solar companies have said they “can’t compete” with. When BP – which only a few years ago aggressively sold itself as “Beyond Petroleum” – announced in December that it would exit the solar business, CEO Mike Petrucci told staff, “The continuing global economic challenges have significantly impacted the solar industry, making it difficult to sustain long-term returns for the company.” This was after BP had just closed its only U.S. solar manufacturing facility in 2010 and said it would instead outsource its production to China and India.

Similarly defenders of the iconic company of President Obama’s green energy stimulus failures, Solyndra, blamed U.S. failures to “compete” with China even though it received hundreds of millions of dollars in taxpayer backing. In a letter written a year ago to President Obama, Sen. Ron Wyden pleaded, “The American solar industry is facing unparalleled challenges, and without the leadership of your administration this industry may disappear.” The Oregon Democrat pressed the president to file a complaint with the World Trade Organization about China’s practices.

According to a Bloomberg report China provided at least $30 billion in credit to its solar companies in 2010, and also offered incentives like free land and zero-percent financing. Ridiculous and unsustainable giveaways like these were also business practices with which the U.S. government was supposed to help American solar manufacturers “compete.”

And when another Obama stimulus loan recipient ($70 million), Abound Solar, declared bankruptcy last month, China again was identified as the culprit.

“China realizes this is a huge global market and a competition worth winning,” wrote Damien LaVera, a spokesman for the Department of Energy, in an essay that announced that Abound would close its doors and liquidate in July. But the development didn’t faze LaVera, as he re-emphasized the administration’s commitment to renewable schemes.

“Through our Loan Program,” LaVera wrote, “the Department is working to answer the challenge from China and others by supporting a large number of solar projects.”

Now all the foolish measures taken by the Chinese to prop up the so-called “energy of the future” – which has actually been around for decades – are finally taking their toll. This follows subsidy cutbacks by Germany, Great Britain and Italy, while Spain completely halted its solar subvention.

The unavoidable incentive of financial sanity will finally cause a full collapse of the solar industry, even in China, where even the coercion of Communism cannot supersede the laws of economics. The pangs of the ugliness are only now beginning in the U.S., with much more to come.

Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com, an aggregator of North Carolina news.